Stock markets have become one of the most lucrative options to build wealth. A lot of us have already invested or are planning to invest in stock markets. But how many of us actually know where the money goes when we invest or buy stocks of a company? Let’s find out!

In this article, we will discuss all stocks such as what they actually are, why should you own them, where does your money go when you invest in stocks, what happens to your money when the value of your stock drops, what does owning a stock involve and all about buying and owning stocks that rise and fall. So let’s start:

What is a stock?

Stocks are the general term representing a slice of ownership of one or more companies.

Stocks are, surely, the way by which ordinary people can invest in some of the biggest and most successful companies in the world. A lot of people and investors choose this way to build wealth. In fact, the chance to earn a good return on investment is one of the main reasons why so many investors choose to invest in stocks.

The investor gets to essentially own a little piece of the company whenever they own a stock. The money goes indirectly to a company, through an investment bank, when the investor purchases that stock as a part of the company’s IPO (Initial Public Offer)

When it comes to the company’s part, stocks are a good way to raise capital to fund many new initiatives such as products, innovations, etc.

What is the difference between a stock and a share?
The difference between a stock and a share is that “stocks” are the general term representing a slice of ownership of one or more companies, and “share” has a specific meaning and represents ownership of a particular company.

Why should one own stocks?

Basically, buying a company’s stock means buying ownership in a company, as told before. Stocks generally provide a good return on investment, especially in the long run. An investor can expect a return of about 10% on his investment, which, considering inflation, can drop to 8%.

Building a diversified portfolio which involves buying stocks in companies across different countries and industries seems to be a wise decision rather than investing in just one company, considering that not every stock has the same kind of return and fluidity.

Returns on stocks come in many different ways irrespective of the type of company the person decides to invest in. Some of them are: 

When you sell the stock for more than what you paid for, it fetches you a profit because the stock value goes up, i.e., it appreciates over time. 

Stocks can also pay you a dividend, which is basically payments made to shareholders out of the company’s profit. Stocks usually pay monthly, quarterly, semi-annual or annual dividends, but you have to keep in mind that not all stocks pay dividends.

What happens when you buy a stock?

Where does the money go when you buy a stock?
When traders buy stocks, the money from the trading account goes to the broker’s pool account. Then the money from the broker’s pool account goes to the clearing corporation. Finally, the money will reach the seller of the stock at the price the trader bought.

So now that we have a basic idea of what stocks are and why one should own them, it’s time that we take a deeper look at where one’s money goes when one invests in a stock. 
Normally, a company decides to sell shares when they need money for their business. They can invest in different enterprises or initiatives such as funding new products or portfolios, expanding production, or spending on other things such as marketing or research.

The company first issues shares via an IPO (initial public offering), which the investors can buy or sell once they’re available on the market. 

The shares can be exchanged between buyers and sellers after they’ve been issued on the market. This is known as a secondary market where the money goes to another investor selling their shares. 
The investor receives money from a buyer via an intermediary, generally known as a broker, when they want to sell their shares. 

What happens when you sell a stock?

When traders sell stocks, the money from the trading account goes to the broker’s pool account. Then the money from the broker’s pool account goes to the clearing corporation. There is an actual buyer who will purchase these stocks, and the trading house absorbs the sale and reimburses you at the current market price.

So when traders buy stocks, they are not buying them from the company; they buy them from other existing shareholders. When traders sell their stocks, they do not sell them back to the company because they sell them to some other investor.

What happens to the money when the value of a stock drops?

Let’s take a simple example to support the statement.

So two people want to trade stocks: x and y 

Let’s say that x bought a share from y for 20 rupees. After a certain amount of time, the share’s value started to drop, and x sold the stock back to y for 10 rupees. So in this transaction, x lost 5 rupees, but y made 10 rupees. 

Unlike this example, the stock market is much more complicated. There are a lot of stocks and a lot of participants.  Different people have different cost bases.

The stock market, like derivatives, isn’t a ‘zero-sum game.’ A lot of people buy stocks keeping in mind that someday another party will pay more for it. And this thought process works as there is no expiration date for the stock market. 

The interesting part is that people are always either on the winning or losing trade to a certain degree. So the answer to this simple question is that the money is with the person who sold you the stock. 

What involves owning a stock?

A majority of people invest their money in common stock, which also comes with voting rights and includes dividends. 

Other types of stock work differently, such as preferred stock. One should remember that owning a stock and owning a share in its profits or losses are two sides of the same coin. That means that the owner doesn’t have a say in the company’s managerial decisions, and they also won’t be provided a desk at the company’s headquarters.

Stocks have a good history of providing excellent returns to investors, but they come with a risk. An investor owns stock with a goal that the company’s value (also, the stock) should go up as long they own such a stock. However, the investor should also keep in mind that, due to the market being very volatile or due to certain conditions or mishaps in the company, the stocks’ value can also go down in value. This is one of the main reasons why the investor needs to pay a good amount of attention to the market and the company’s activities because even the smallest issues such as a crisis or a wrong communication can affect the value of the stock of that company. 

Generally, a lot of investors prefer to go long term for the stocks they invest in. The result is that the overall value of that portfolio would go up over time. Many long-term investors also prefer going for Mutual Funds, through which they can indirectly own stocks. The benefit? Mutual Funds tend to offer pool investment funds that ensure diversification to a certain level. 

What about buying stocks that rise and fall?

With all the following information, you must’ve come to know that the stock market is not as simple as one thinks. One should always be on their toes to be successful in trading stocks and should always be aware of the market conditions and the strategies of the companies they invest in. This helps the investors to make better decisions, resulting in a higher return on investments.

Now that you have an idea about the stock market, it’s time to go out there and start investing!!

Situated in the southern part of Africa, Namibia or the Republic of Namibia is a country that gained its independence in the year 1990. Its capital is Windhoek. The country is an active member of the African Union(AU), Commonwealth of Nations, the South African Development Community, and the United Nations (UN). The economy of Namibia has been stable since its independence in 1990. The country is famous for its tourism, agriculture, and animal herding. It is one of the richest countries in terms of minerals such as gold, silver, diamond, uranium, and basic metals making mining one of the important activities here, bringing in more than 50% of the country’s GDP. Namibia’s political stability, remarkable tourism, richness in precious stones and minerals, and economic stability make it desirable for trading.

Namibia’s Economy and Financial Market

Namibian economy has been quite stable after its independence from South Africa in 1990. The country has a large number of skilled labor which provides for an adequate workforce to the country. Although the income is relatively unstable throughout the country, Namibia’s annual GDP per capita stands at $5,828 which makes it a higher middle-income country. Namibia has been able to reach here because of its Foreign Investment Act 1990 provided liberty to foreign investment. The economy is mostly dependent on the export of minerals extracted here but the foreign investments and the government’s promotion of trading are also helping the country to grow.

Namibia has only one stock exchange, that is, the Namibian Stock Exchange (NSX), which is located in its capital, Windhoek. It was first introduced in the 1900s when the country experienced a gold rush but was later shut down only to be reopened in 1990 to provide for a platform for trading and the stock market in the newly independent country. 

Stocks brokers in Namibia

Simonis Storm stock broker in Namibia

One of the most famous stocks brokers in Namibia is Simonis Storm. Since 1996 SS has grown assets under management from N$ 600m to circa N$ 3 billion; which includes money market assets and equity portfolios of private clients.

IJG Securities stocks broker in Namibia

IJG Securities is the leading Namibian stockbroker and is supported in its sponsoring, equity and fixed income trading services with cutting-edge market research and analyses.

Namibian Financial Market and Trading

The Namibian government has taken and is planning to take many more measures to promote its financial markets. The government has prepared many policies for free and liberal trading for local as well as international traders and is very actively participating in the financial markets of other countries like South Africa. The financial market of Namibia has many security options for traders such as cryptocurrencies, CFDs, Commodities, Forex, etc. 

Since the country gained its independence in 1990, its financial market is considerably new and the government is still exploring the possibility of future growth and available options to promote trading in the country. Let’s look at some of the available options for trading in Namibia.

• Cryptocurrency:  From a regulatory standpoint, cryptocurrency or digital currency trading (national or international)  is currently illegal in Namibia. The Bank of Namibia (BoN) strictly stands on the ground that they do not support or encourage any kind of activities related to trading in cryptocurrency. The bank has expressed tp the citizens that they also should not indulge in any type of activity related to the cryptocurrency. If, however, the citizens neglect the warning and do participate in cryptocurrency trading, they will not be protected by the government in any way.
• Forex Trading: Foreign Exchange or Forex Trading is legal in Namibia but not available to everyone. The Bank of Namibia has issued guidelines on Forex Trading that only authorized dealers or commercial banks are allowed to trade in forex. These rules are set by the bank to protect the economy as they have experienced capital outflow in the past and this decision was best in the interest of the economy. But for income, investment is also required so the forex trading is not completely illegal.

• Commodity Trading: Namibia’s richness in commodities like minerals, agriculture, and cattle keeps it on the positive side of commodity trading. The country’s maximum GDP is derived from the exports of commodities like silver, diamond, gold, livestock, etc. Namibia also imports medicinal commodities from other countries. Due to the presence of such a big market of import-export, Namibia provides a good platform for commodity trading.

Namibia Financial Market Benefits and Concerns

It is evident from the growing economy that Namibia has good potential in the future to attract more international traders. The country’s exports provide good support to the economy. Also, the government, along with other institutions, is continuously providing people with opportunities. This is why the country has a large number of skilled people.

However, restrictions laid on the trading market and regulations set by the financial authorities can cause strictness in the entry of foreign traders. Therefore, it is advisable to look for an experienced and authorized Namibia Broker that can keep you updated with the government regulations and help you grow with your investment in Namibia.

Brokers’ Checklist

There is an ultimate checklist that you can use while selecting a broker for trading in Namibia or in any country. This checklist states all the factors that need to be considered while selecting a broker, that will help you know the best choice for your portfolio.

1. Is your Namibia Broker regulated? A regulated broker is a must, not only when you are investing internationally but also domestically. A regulated broker is bound by the law to keep his work legalized and cannot misuse the trader’s investment. He/she may also be able to help the trader out of any dispute that may arise while trading.
2. Is your Namibia Broker good with customers? Your broker’s customer reviews tell a lot about his work ethics and experience. One can always contact the broker’s customer and get to know more about the broker.
3. How long has the Namibia Broker been working in the market? The broker’s time spent in the market can help you determine the broker’s knowledge of the market. The more time he has spent, the more accurately he can predict the trends in the market and more efficiently he can help you to invest your money. This will definitely help the trader in the long run. Generally, a broker with an experience equal to or more than 2 years are considered good.
4. What is the position of the Namibia Broker in the international market? Where does the broker stand in the international market? Is the broker domestic or internationally recognized? These factors can help you know if the broker has knowledge of other country’s market as well. Brokers may also have resources in the international market that may also help in issues like communication, understanding the laws and regulations. This is important when you are trading internationally.
5. How efficient is your Namibia Broker with the transactions? Efficiency in terms of transactions is much needed while trading. Delays in withdrawals and deposits can cause delays in investment plans. So, it is important to know if the broker can get the transactions completed within 2 or 3 days.

Conclusion

Trading in Namibia is as safe as trading elsewhere. All you need to do is to make sure that your broker passes the checklist that we have curated for you.

How can we determine the cost basis of stock that we received as a gift?

If you have been assuming that to be able to conduct the determination of liability regarding the gift tax, the value that is associated with a gift of stock is regarded as being gifted shares cost basis, this article will shed more light on the real situation regarding this type of issue. Thus, it is understood from this vantage point that when someone is given a gift of stock, there is the placement of a different value for the sake of gift purposes as well as income tax purposes. Liability for gift tax is founded on what is regarded as fair market value in terms of the date when the gift is actually received. Liability in terms of income tax, which is set forth when the receiver decides to sell the stock, is founded on both the holding period of the stock and the cost basis of the designated shares of the stock.

A lot of issues can arise.

It cannot be denied that stock gifts can cause the rising of many issues about taxation. This is because there are various methods for determining the value of the stock based on if the stock is for the sake of income tax or gift purposes.

The possibility of possessing a liability for gift tax is applied only to the one who donates more than a designated cap off-limit, such as fifteen thousand dollars or more in the year 2020, to an individual in the span of a year.

Calculating the cost basis on gifted stock
The one who received the gift is not required to pay a tax on the gift. However, when the person moves forward with selling the stock, there is the requirement to derive the calculation of a value of the stock for the sake of income tax.

The giver’s original cost basis determines the cost basis of the stock that the person received as a gift (“gifted stock”) and the fair market value (FMV) of the stock at the time he or she received the gift.
There are 3 solutions :
1) If fair market value (FMV) is more than the original cost basis, a person should use the original cost basis during the selling process.
2) If fair market value (FMV) is less than the original cost basis, a person who sold the stock for more than the original basis should use the original cost basis in the calculation.

3) If fair market value (FMV) is less than the original cost basis, a person sold the stock for more than the original basis but less than the fair market value at the time of the gift, then selling price will become a cost basis.

Important rule:

Determining the value of the stock for the sake of gift tax

The tax basis of gifted stock: The value of a gift of stock for liability regarding gift tax is not considered the cost basis of the donor. Instead, the value regarding a gift of stock in light of the issue of liability for gift tax is considered the market value of the stock when the gift is provided to the recipient. Take into consideration, for example, that you bought one hundred shares of a particular type of stock at a rate of fifty dollars for each share. The cost basis then, is noted as being five thousand dollars. At present, the stock is now eighty dollars per share, and you decide to give the stock as a gift to someone. Thus, it is noted that the determined value concerning your gift is eight thousand dollars for the sake of gift tax.

For the year 2020, someone could contribute as much as fifteen thousand dollars to a limitless number of people per year while there was no need to report such gifts or pay a tax on those gifts. If there was the giving of more than fifteen thousand dollars to any particular person, then the scene changed. It was necessary to include a report of the gift when filing taxes. However, there was no need to make any payment of taxes until there is the giving away above eleven million four hundred thousand dollars, which is the present limit for a lifetime–regarding the amount mentioned in the sample as well over the amount of fifteen thousand dollars each year for each person.

Thus, regarding the example, there is no liability for gift tax. But in such cases that the stock was worth two hundred dollars per share, then the gift’s determined value would be designated as twenty thousand dollars. This would make it necessary to conduct a report for this amount, which means that five thousand dollars would undergo an application about the lifetime exemption of eleven million four hundred thousand dollars.

Determining the value of the stock for the sake of income tax

The person who receives the gift is not responsible for any gift taxes when receiving the gift of stock. On the other side of the spectrum, it is noted that in such an instance, if the person chooses to sell the stock, then there is the issue of determining the valuation of the stock for the sake of income taxes. It is at this point that complexities can develop.

It is a typical setting that when it comes to determining the value regarding a gift of stock for the sake of liability linked to capital gains tax, the cost basis of the donor and the holding period is applied. Take into consideration, for example, that your grandfather provides you with a gift of stock. He purchased the stock at a rate of ten dollars for each share. When you receive the gift of stock, it has a value of fifteen-dollar for each share. If you decide to move forward with selling the stock, no matter if there is the deriving of a loss or a gain, your cost basis will be regarded as equivalent to that of your grandfather’s cost basis at a rate of ten dollars for each share. If you sell the stock at a rate of twenty-five dollars for each share, then you will be required to pay tax based on either the short term rate or the long term rate, which takes into consideration the length of time that your grandfather had owned the stock. This will be applied to a gain of fifteen dollars per share. If you conduct the stock’s selling at eight dollars per share, then it is determined that two dollars will be your capital loss for each share.